It’s Not of the China Price. It’s the End of Cheap Crap

Sunday, April 24, 2011 4:43
Posted in category The Big Picture

Back in 2008, before the global economy blew up, there was a lot of talk about the end of the “China price”. That, as the costs of China rose, firms would move themselves away from China …. to Vietnam, India, Bangladesh, Mexico, etc… and at that time I found the arguments lacking in depth. In short, the economics and operations of such a “move” were unrealistic.

In the recent NY Times article Inflation in China poses big threat to global trade the author stokes the flame again:

High inflation endangers China’s status as the low-cost workshop for the world.

Which to me is a conclusion that fails to frame what is going on… that, instead of following a line that the “China price” was gone, the author should have recognized (1) China is, and will be for a very long time, the lowest cost producer globally for the vast majority of what is currently being produced here and (2) That it is actually the end of the “Cheap crap” price that is actually disappearing.

It is a model, the “Cheap crap” model, that survived only because of a series of unique economic conditions and externalities existed, and as these are removed, the prices globally are going to go up.

Call it inflation if you like. Call it paying the full cost of production as the next step. But either way, as firms like Walmart find it hard to maintain their prices, and McDonald’s begin warning of inflation, it should become clear that this is a condition that is less about “China pricing” and more about the end of an economic model.

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